Province will revisit breaks on oil, gas tax

NDP reviews how it values industrial property, including wells, pipelines

The Alberta government plans to review key planks of its property tax regime for the oil and gas industry, opening the door to potential changes at a time that several companies have waged a public campaign for tax breaks.

Pending budget approvals, Municipal Affairs intends to revisit the way it assesses the value of industrial property, including resource wells and pipelines, in 2017.

The important calculation in setting property tax bills has attracted opposition from oil and gas producers who argue the assessed value of many of their assets far outstrips their economic worth.

While some industry officials said they’re hopeful a review would usher in desired changes, one Calgary-based natural gas producer has forged ahead with a formal appeal of its $24-million bill on the grounds of what it calls flawed math and an unfair system.

Doug Dafoe, president and chief executive of Ember Resources Inc., said he is prepared to take his case to the Court of Queen’s Bench to argue Alberta’s property tax regime unfairly targets low-productivity wells, including Ember’s shallow gas assets.

Dafoe is pushing for an assessment he believes is more in line with the value of Ember’s wells and pipelines, but he acknowledges that if his company pays less, other taxpayers — potentially homeowners, farmers or competitors — could pay more.

“We shouldn’t have to put up with wrong math,” he said. "We don’t know how they got to that number (the assessed value). That’s not the value of what we’ve got; that’s not the cost of what we’ve got ...

“Why should we have to pay taxes on that basis?”

Ember has joined a growing chorus of resource producers that have taken their pleas for tax relief public in the middle of an oil price rout that has drained industry profits.

Canadian Natural Resources Ltd., the country’s largest heavy oil and natural gas producer, revealed last week it is lobbying municipal governments for a 30-per-cent tax cut, while Perpetual Energy Inc. has offered to give some counties its assets to cover its bills.

Municipal Affairs spokesman Jerry Ward said the planned review is not a response to lobbying efforts but is a routine recalibration of property assessments. The last one was conducted more than a decade ago, he said.

With one exception, county governments have so far rejected the industry’s appeals for relief, arguing farmers and ranchers have not previously asked them for property tax breaks when faced with mad cow disease, drought or hail.

Al Kemmere, president of the Alberta Association of Municipal Districts and Counties, said the industry has already seen some relief this year, noting several of his members have reported declines in the assessed values of oil and gas assets in their counties.

The assessments were downgraded due to existing adjustments that take into account diminishing replacement value of wells and pipes. One county lost more than $1 million in tax revenue.

Kemmere said he doubts his members would support any changes to the assessment system that would shift the tax burden from one sector to another.

“Every sector could argue they are unfairly burdened,” he said. “The (oil and gas) industry right now is feeling the burden somewhat extra because their revenues have definitely taken a hit, and I can sympathize with that.

“But there are a lot of people who are struggling to pay their taxes right now because they lost their jobs or lost their businesses.”

Canadian Natural said it was hopeful the provincial review would usher in assessments that better reflect the economic value of pipes and wells. The major producer said in a statement the assessment system does not adequately take into account the decline in economic value of oil and gas assets as reserves are depleted.

The Canadian Association of Petroleum Producers said it commissioned real estate consultants to compare property assessments across Ontario, Saskatchewan, Alberta and British Columbia, and found Alberta assessments were several times higher than in other jurisdictions.

The industry group said it plans to press government in the coming weeks — ahead of the review — to have property assessments more responsive to commodity prices, which means assessed values of assets would be lower in downturns, such as the current rout, but also higher in better times.

Still, spokeswoman Chelsie Klassen said current values are too high and should come down to begin with, arguing the assessment system doesn’t fully recognize the depreciation of asset value over time.

In its appeal for a lower property tax bill, Ember Resources said its natural gas wells that span north from Calgary to central Alberta are assessed at $1.7 billion, but the company bought the assets for less than $1 billion.

Ember produces roughly 295 million cubic feet of natural gas per day from a coal bed methane play where its wells don’t produce as much gas as horizontal drillers’, but the wells have long lifespans, lasting an estimated 50 years, according to Dafoe.

The company president and CEO said property taxes for industry should increase with the pace of production, similar to the royalty regime that was grandfathered after the NDP government ushered in changes earlier this year.

Under the current tax system, he said Ember is “getting creamed” because it is paying the maximum tax rate on its lower-producing wells.

“The counties won’t lose any money,” Dafoe said of his proposal to cut Ember’s property tax bill. “The burden is going to be redistributed correctly to the people that should pay it.”